Who Qualifies for an SBA Loan?

In 2021, the U.S. Small Business Administration oversaw nearly $45 billion in loans to small businesses.

These loans funded minority-owned businesses, women-owned businesses, veteran-owned businesses, and more. An SBA loan allowed these small business owners to pay for daily expenses and invest in future growth.

Before getting the loan and putting it to good use, however, they had to qualify for the loan. In this article, we’ll look at the qualification process to see if it’s right for you.

What Is an SBA Loan?

An SBA loan is a loan backed by the U.S. Small Business Administration (SBA). The SBA is a federal agency tasked with helping small businesses start, run, and grow. They do this by connecting the small businesses with qualified lenders (banks, credit unions, online lenders, etc.) who provide the actual loans.

The major role of the SBA is to take out some of the risks associated with small business loans. The SBA does this by guaranteeing to pay the lender a certain percentage of the loan, which varies from loan to loan, in case the borrower defaults.

To justify taking this risk, the SBA has some fairly strict guidelines for who can qualify for an SBA loan.

SBA’s General Requirements for an SBA Loan

To determine eligibility for an SBA loan, the SBA has a few general requirements. They can be broken up into three broad criteria: business, investment, and financing.

Business

Your small business must meet the definition of “small business” according to SBA standards.

On top of that, it must be a for-profit business in an eligible industry. The SBA has a variety of industries it deems unacceptable for financial assistance. These range from life insurance companies to gambling businesses to speculative businesses.

To see if your business qualifies, it’s best to verify it here.

Alongside having a small, for-profit business in an eligible industry, your business must legally operate in the U.S. Also, it must be registered and physically located in the U.S.

Furthermore, the business owners can’t have existing government debt, and anyone who owns 20% or more of the company can’t be on probation, parole, or currently incarcerated.

Investment

The SBA wants to make sure that small business owners have a meaningful stake in their companies. So, they require owners to have put a reasonable amount of time and money into the business.

Financing

An SBA loan is not meant to be a first-time solution. That’s why the SBA requires borrowers to try out other financial solutions such as family and friends or crowdfunding before turning to an SBA loan.

Furthermore, potential borrowers need to show they will put the funding towards a “sound business purpose.”

Lender’s General Requirements for an SBA Loan

The SBA only backs an SBA loan with a guarantee, they don’t provide the loan itself. That job goes to lenders ranging from traditional banks to online lenders.

So, on top of the SBA eligibility requirements, the lenders themselves also want to determine eligibility. To do that, they generally look at the following five criteria:

• a “good” credit score (generally, a FICO score of 670 or above)
• no bankruptcies in the past three years
• a 10% down payment (or perhaps more)
• at least two years in business (for most lenders)
• some collateral (inventory, equipment, etc.)

If you meet both the SBA’s and the SBA-backed lender’s requirements, then you’re likely to get approved for an SBA loan.

The specific kind of SBA loan you get depends on your specific needs. There are two main types of loans: the SBA 7a Loan and the SBA 504 loan.

SBA 7a Loan: Purposes, Amounts, and Processing Times

The SBA 7a Loan is a broad loan program that’s meant to provide working capital loans for small businesses. These business loans are meant to pay for daily expenses such as rent, utilities, payroll, and more.

Although purposes, amounts, and processing times vary for each individual SBA 7a loan, there are some general guidelines. For example, most are restricted to daily expenditures, have a maximum loan amount of $5 million, and take anywhere from a few hours to a few days to process.

Popular kinds of SBA 7a loans include:

Standard 7a Loan

This loan is the most common one, and it provides working capital for small businesses. The maximum amount is $5 million, and it takes 5 to 10 business days to process.

7a Small Loan

The small 7a loan shares the same purpose as the standard 7a loan. The major difference is that it’s geared to businesses with smaller financial needs —up to $350,000. Processing time is also about 5 to 10 business days.

Express Loan

This SBA loan was created to provide express approval (typically under 36 hours) for those who need funding quickly. The maximum loan amount is $350,000.

CAPLines of Credit 

The CAPLines of Credit includes the following four kinds:

• Contract CAPLines
• Seasonal CAPLines
• Builder CAPLines
• Working CAPLines

Each is slightly different than the other, but they’re all meant to provide credit for seasonal businesses or businesses with short-term financial needs. Loan amounts are up to $5 million, and processing time is up to 10 business days.

SBA 504 Loan: Purpose, Amount, and Processing Time

Rather than focusing on providing short-term working capital loans for small business, the SBA 504 loan focuses on fixed assets. These assets can be anything from facilities, land, and other kinds of real estate to large equipment purchases.

The maximum loan amount is $5.5 million, and processing time can take anywhere from 60 to 90 days depending on the SBA, the lender, and the borrower’s ability to get relevant paperwork.

Are You Ready for an SBA Loan with USA Funding?

After determining if you qualify for an SBA loan, the next step is to go ahead and find a qualified lender that has the experience and know-how to help your small business succeed.

USA Funding has been offering financial services to businesses in the tri-state area for 30 consecutive years. They can help secure the finances your business needs for daily costs and future growth. Contact us today to learn how.